Do I Need to File a Tax Return If My Partnership Has No Income or Expenses?

by Van Thompson

Many partnerships can avoid taxes if they make no money.

If you are involved in a partnership that is just getting off the ground, it might not have any income or expenses yet. In most cases, partnerships with no income and expenses don't have to file tax returns, but your tax status depends on your business' corporate registration.

Taxes for Partnerships

Businesses registered as partnerships don't have to pay taxes if they don't have income or expenses. However, some partnerships have expenses but no income. Even if you decide you don't want to take tax deductions for these expenses, you still have to file a tax return. If you don't, the IRS could pursue you for an unfiled return. Consequently, if you truly have no income or expenses, keep records supporting this fact in case you are audited.

Taxes for Other Businesses

The fact that your business functions as a partnership doesn't mean it's registered as one. For example, law firms might call themselves partnerships but register as corporations. If your business is registered as a corporation, you'll have to file income taxes even if you earned no money and had no expenses. This rule extends to S corporations, which are common corporate setups among small business owners.

Foreign Corporations

No matter your corporate status, you'll have to file a tax return if you are a foreign corporation doing business in the United States. This rule applies even if all of your income is completely exempt from taxation, or your business had no revenue, profits or expenses in the previous tax year.

Changing Filing Status

If you're registered as a corporation and want to minimize your tax filing obligations, consider dissolving your business and then reincorporating as a partnership. Businesses are incorporated at the state level, and each state's requirements for incorporation vary slightly. As a general rule, you'll have to complete paperwork with your state Secretary of State's office and may be required to draft bylaws, write articles of incorporation and provide information about shareholders.

About the Author

Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.